China Evergrande cancels land deal for US$818 million refund to overcome liquidity crisis, end grandiose football stadium plan
- Distressed developer seeks a 5.52 billion yuan refund by returning land-use rights to four parcels of land in Guangzhou
- Evergrande sunk 2.1 billion yuan in cost to build the world’s biggest football stadium before it ran out of cash amid bond defaults
The embattled developer will return land-use rights on four parcels of land totalling 499,113 square metres to the Guangzhou municipal government for a 5.52 billion yuan (US$818 million) refund, according to a stock exchange filing late Thursday. It paid 6.813 billion yuan for the rights in April 2020.
“The group’s liquidity issue has adversely affected the development of and construction on the land,” Evergrande said. The decision is fair and reasonable and is in the best interest of the company, it added.
The developer is racing against time to fend off hostile creditors, including holders of about US$20 billion worth of offshore bonds following a default in late December. It disappointed investors last month when a restructuring plan failed to offer details on how it will repay some of its US$300 billion of liabilities.
The April 2020 contract allowed Evergrande to build and sell homes, as well as develop commercial and sports facilities for a term of 40 years, and allowed business uses for 50 years.
Founder and chairman Hui Ka-yan envisioned a lotus-shaped 100,000-capacity stadium at a cost of 12 billion yuan, a size surpassing Europe’s biggest at Camp Nou in Barcelona, Spain. Evergrande sunk 2.1 billion in construction costs into the stadium project until it was was halted as the developer ran out of cash.
“Evergrande Stadium will become a new world-class landmark comparable to the Sydney Opera House and Burj Khalifa in Dubai, and an important symbol of Chinese football to the world,” Xia Haijun, then chief executive director, said during the groundbreaking ceremony two years ago.
Evergrande bought the Guangzhou Evergrande football team in 2010, spent lavishly to sign international players and won the Chinese Super League for an unprecedented seventh consecutive season in 2020, before finishing third last year.
The 5.52 billion yuan refund will be transferred directly into an escrow account linked to the plot of land and will be used to settle the costs related to the Guangzhou Evergrande Football Stadium deal, including loans Evergrande owed to Citic Trust, construction costs and unpaid wages, the company said in the filing.
The refund took into account an initial deposit of 1.36 billion yuan in April 2020, 218,300 square metres of land in 4,371 commercial housing units it has pre-sold to buyers for 2.02 billion yuan, and the 2.1 billion yuan in construction costs. The Guangzhou government has agreed to complete the stadium project, it added.
Evergrande failed to pay the interest on US$645 million and US$590 million of junk bonds in December, even after a grace period, triggering a cross-default on its other borrowings. Its bond maturing in January 2023 has fallen by more than 85 per cent in the past year to about 8 cents to the dollar.
The Hong Kong stock exchange operator warned the company in June of the possibility of a delisting as it continues to delay publishing its accounts. It last published its financial report for the interim 2021 period in August last year.